ST. PAUL — Minnesota's attorney general filed a lawsuit Wednesday, Aug. 16, against two lending firms, accusing them of bilking money from veterans and senior citizens.

Future Income Payments, of Delaware, and FIP, of Nevada, reportedly required seniors and veterans to sign over huge portions of their monthly pensions to cover relatively small loans taken out for medical bills, emergencies and basic household expenses. Interest rates were as high as 200 percent, according to the Attorney General's Office.

"It's a very expensive way to borrow money, and it usually puts people even further into debt," Attorney General Lori Swanson said. "People went to this company because times were tough. They had a medical bill, an emergency, or regular household bills they were having trouble making. By taking these loans ... they ended up aggravating their financial position."

The companies, which have the same address listed, could not immediately be reached for comment Wednesday.

Consumer complaints

Billie Joe Slater, 72, of Mounds View, receives benefits from her late husband's military service. When she found out her springer spaniel — "my baby," she says — had cancer and needed surgery, Slater said she had to borrow money from FIP. When the $2,100 arrived, she used it immediately.

The contract was sent over later and Slater discovered she would be required to pay back $350 every month from her late husband's benefits for 60 months — not 16 like she was originally told. In total, she is required to pay $21,000, 10 times the amount she borrowed, at an annual percentage rate of 200 percent.

Cecelia Gleb borrowed $2,249 to pay off debts. She said $300 is taken out of the $386 she received monthly from her former husband's military pension for five years, totaling $18,000.

Stephen Schmelz was a disabled veteran trying to catch up on medical bills. He said he was charged $27,000 for his $2,700 loan. He called the company "snakes in the grass."

"They know that we need the money desperately, they know that we have a fixed income, and they know that that's going to be a direct payment every month," Schmelz said. "Based on that they said 'okay' to me."

Commissioner of Commerce Mike Rothman said the department is investigating at least 100 Minnesotans cases with this particular company. There may be several others with similar strategies, Swanson cautions.

'Purchase agreements'

Federal law prohibits companies from purchasing or acquiring military benefits, but veterans are allowed to use those benefits to pay loans. So at the federal level, these companies identify the transactions as loans, Swanson said.

But under Minnesota law, lenders must obtain a license from the Department of Commerce before issuing loans. Because Future Income Payments and FIP aren't licensed, they characterize the transactions as "purchase agreements" at the state level, according to Swanson.

FIP self-identifies as "America's largest pension cash flow originator with over $300 Million in completed transactions."

The companies target people in need of quick cash and train their representatives to use urgency and instill a "fear of loss" to convince residents to enter the agreement, the lawsuit said.

California, Colorado, Iowa, Massachusetts, North Carolina, New York, Pennsylvania, Washington and the city of Los Angeles have all taken action against one or both of the companies recently.

Most states have banned the companies from entering into agreements with residents without first obtaining a valid license. Some lawsuits are still ongoing.

The lawsuit, filed in Hennepin County District Court, charges the companies with unlicensed lending and usury. It seeks an end to the alleged practices, restitution for those who already paid illegal interest, and all other unlawful loans to be declared null.

Recipients of null loans do not pay back principal or interest, Swanson said.